You need a pull up on the output of the hall sensor. When the sensor switches "on" the output of the hall sensor sinks current (acts like a ground). You need to add a resistor between 5V and the output to set the signal high for when the sensor is not "on" and sinking current.
Melexis recommends a 5.6K resistor (or a 10K would probably be OK) for the pull up between pin 1 and pin 3 of the hall sensor.
If it's not apparent by what I've said above, the sensor will report a "high" signal when no magnet is present and low when the magnet is present.