Problem in reading data from encoder with arduino
In my experience (industrial encoders and PLCs) when the output don't change when the motor shaft is rotated its usually one of the following:


The set screw connecting the motor shaft to the encoder that isn't tight,
broken wire (bad connection to the encoder) or
a bad encoder. 


Your picture shows what looks like a cover over the encoder coupling to the motor.  Look and make sure that the encoder is actually rotating with the motor.

Then double check your connections.  If a DMM still shows no voltage changes (use AC range if turning the motor to show that the encoder output is pulsing).

If there is still no joy, its likely that the encoder is bad.