Manufacturing activity in the United States contracted in May, according to the Insitute of Supply Management. The reading of 49.6 for the overall index from was up from 48.6% in April. It beat economists' expectations of 47.9.

"Manufacturers find themselves caught between rising costs and weakening demand in many industries," Norbert J. Ore, chairman of ISM's manufacturing business survey committee, said in a statement accompanying the report. "Exports continue strong due to the weak dollar -- without the weak dollar the story would be much more negative in manufacturing."

The ISM said that its index of prices rose to its highest since April 2004. Prices climbed for all commodities except zinc and methanol. In addition, order backlogs, an indication of future work, fell 5.5 percentage points lower than April.