Starting with 54 sts, that's only 11.2 inches around. 60 sts would be 12 inches according to the gauge of 5 sts per inch. But, it says the sizes are approximate. So I guess they think it's close enough.
But, who's really gonna do the newborn size anyway? I think starting with size small makes more sense. Considering how fast that little newborn will grow. They'd only fit in the newborn size for a few weeks.. unless they're preemie.