ISM's employment index increased 0.9 percentage points to 50.4, reflecting growth for the first time after 28 consecutive months of contraction.
The May business activity index rose to 61.1 from 60.3, while the new orders index dropped to 1.1 percentage points to 57.1 in May from 58.2 in April, according to the ISM report.
Prices are still increasing but pressures eased in May, according to the report.
Factory orders for U.S. manufactured goods totaled $420.8 billion, slightly below economists' predictions. The Commerce report showed improved revised figures of 1.7 percent growth in March, up from a previously estimated 1.3 percent increase.