How I proceeded.
Open image. Some functions can not be performed on the locked background layer, so unlock it to make it a regular editable layer. Easy way to do this is click on the padlock in the layers palette and drag it to the trashcan.
Select the elliptical marquee tool. You want to make a perfectly round selection, so there are a couple of ways. (1) In the tool option bar, select Style > Fixed Ratio and enter a number of equal value in the Height and width boxes. (2) with the style left at Normal, you can hold down the Shift key while dragging out marquee selection to constrain the proportions. Selecting a fixed pixel size really isn't an option because, at this stage, you don't know what the final size will be. Then drag out a circular selection of desired size and position.
Invert the selection, so that everything but the circle is selected, and press the Delete key. This will leave your circle on a transparent background.
Deselect.
Image Menu > trim > Transparent pixels, all boxes checked. This will crop your image size to the diameter of the circle.
Image Menu > Image Size. Make your image 1.5 inches with the resolution required by your printer or printing service. I turned off the resample option in my example, but you should probably leave that turned on and enter a resolution value of 300 dpi for commercial printing.
Add text. I selected the text tool, dragged out a text box and entered your text in a colorselected to match the new mother's blouse. I liked the Center text alignment best, but you can toggle between the three choices as well as changing the text size or font style.
Add layer styles to the text if desired.
Finally, to have these printed, you may want to flatten the image, increase the canvas size to a traditional print size, like 4 x 6 or 5 x 7, then duplicate the layer several times and move the layers around so that you can get multiple circle images from each print.
