Here are a few things to check:

Are the feed dogs up?
Is the presser foot down?
Is the embroidery unit engaged properly?
Is the hoop attached properly?
Is the embroidery arm hitting something?

If you can't detect anything wrong with the machine, maybe it's something in the design you are using - poor digitizing, too dense for your machine/fabric, etc.

If it does seem like something with the machine, take it back where you bought it and make them fix it!

Donna

All the things you pointed out seem to be working properly. Maybe I'll re-create the design. It's a simple rectangle with text in the middle. No fill in or anything.
Thanks for the reply!

You might try bobbin thread on the bottom and be sure you are using the right thread cap, sounds too simple but it cured the problem for me. Good luck!