WASHINGTON -- Labor markets tightened in many pans of the country as the economy continued to grow during the summer, the Federal Reserve said yesterday.

The Fed's beige book report on business conditions, based on surveys taken in the 12 Fed bank districts, painted a generally upbeat picture of the economy, drawing little market reaction.

The report will serve as a basis for the Sept. 27 meeting of Federal Open Market Committee officials to review interest-rate policy. Most analysts believe policymakers will hold rates steady this month but tighten credit again in the fall given continued evidence of a crackling economy.

A separate Commerce Department report said retail sales in August rebounded 0.8% after being flat in July, suggesting that consumer demand is continuing to underpin growth. Excluding autos, sales jumped 0.7% -- more than most economists expected.

"It seems to be a pretty solid report. It was a surprise that the core rate of sales excluding autos was up so strong," said Chris Rupke, an economist with Mitsubishi Bank. "That kind of spooked people because greater demand in the economy at this stage can only fan the flames of inflation a little bit."

Fed chairman Alan Greenspan has said officials will be closely monitoring anecdotal evidence about wage and price pressures in the economy in assessing whether to tighten credit again.

The Fed's beige book, which was prepared by the Federal Reserve Bank of Atlanta based on information collected through Sept. 8, said, "labor markets seem to be steady or tightening in all areas."

Worker shortages were reported in Chicago, where manufacturers reported "vigorous" production nearing full capacity levels in a number of industries. The Midwest has been benefiting from strong auto output and rising exports to overseas customers.

The St. Louis and Atlanta districts also reported that businesses were having trouble finding qualified workers, the Fed report said.

The report confirmed that price increases were taking hold for industrial commodities in many regions, which fit with last week's producer price report from the Labor Department showing a 0.6% jump in the producer price index in August. Atlanta, for example, reported more widespread price increases for paper, metals, and building products.

However, the Fed report also said that wage pressures remained modest despite the strengthening of labor markets. And it said that while industrial materials prices were edging up, businesses reported that competitive pressures were making it difficult to raise the prices of finished goods.

The Fed report said that consumer spending looked "healthy, albeit decelerating, and retailers' expectations for holiday sales are generally favorable."

The strong August retail sales figures released by Commerce were accompanied by upward revisions for previously reported sales activity in June and July. As a result, analysts said, it now appears that the economy grew a respectable 2.5% in the second quarter.

"The essential message is that the consumer was not dead as some people thought," said Paul Kasriel, an economist with Northern Trust Co. in Chicago. "I think things look pretty strong finishing the third quarter and making the turn into the fourth quarter."

Many economists believe that if the economy quickens again in the last three months of the year that the Fed will be under irresistable pressure to raise rates. "There has been a pocket of weakness but maybe we can start moving out of it toward the end of the year," said Joel Prakken, an economist with Laurence H. Meyer & Associates, in St. Louis.

Meanwhile, Chicago Fed Bank President Michael Moskow said yesterday that he "generally" supports the Fed's policy of raising interest rates this year.

Moskow, who succeeded Silas Keehn on Sept. 1, defined the Fed's primary goal as providing enough credit and money in the long run "to ensure growth in the economy in line with its potential" and with reasonable price stability. He said he agreed with Greenspan's definition of price stability as the point at which prices do not interfere with decision-making in firms.

"I think it's a pretty good definition," he said. "It's very hard to put a precise number on that."

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