I used the blue straight loom to make the body, and the blue round loom for the sleeves, with Bernat Baby Coordinates yarn. I knit 1 over 1 on 48 pegs (using the anchor peg and a loom clip). At the bottom of the shrug, I alternated knit and purl stitches for 8 rows, then completed the body using stockinette stitches.
For the arm holes, I simply removed the yarn from the corner pegs and put it on the peg next to it, and knit off. Then separately I knit each "panel" between the arm holes, cutting the working yarn when I knit off 60 rows. After 60 rows I e-wrapped all the pegs with the working yarn and knit off 6 rows, alternating knit and purl stitches to make the neckline.
I made the arm holes too big, so I am going to make the shrug again to get more exact directions before I post detailed directions on how to make it. Also, I ran out of the yarn after completing one of the sleeves. When I bought another skein, I noticed that the gauge was slightly thinner than the shein I had used to knit the shrug with, but I didn't realize this until after I had completed most of the second sleeve and had to frog it. To make the sleeves fit better, I simply "turned" the top rows of the sleeve, as if I were knitting the heel of a sock. At first I wasn't sure if this would work; I thought it might not fit my daughter very well. But when she tried it on it fit perfectly.
The finished body of the shrug measures 10.5x11; the sleeves are 16" each. Naturally, since I used the stockinette stitch, the cuffs on the sleeves curl, and the chest panels curl also; but I don't mind that. That isn't a dropped stitch on her shoulder; that's where I made a knot in the yarn when I joined the sleeve to the body. I need to tuck that on the inside to hide it better.
I decided to knit the entire piece 1 over 1 because she would be wearing it to keep the chill off during dance class. My wife thinks it will go well with her Sunday dress on Easter. I agree.