Don't have a pocket, don't have an elf, you can knit both! Use nice bright colours, and 3mm needles.
Step 1: A Nice Pair of Legs
Get your yarn and your pattern http://www.jeangreenhowe.com/Images/Rainbow_Babies.pdf and you are all set. Start with one foot and leg at a time. Join them up and knit upwards!
Step 2: The Face and Upper Body
The upper body and head are finished! Knit the hat and scarf in matching colours.
Step 3: The Face
Here's the finished face. Embroider the eyes and mouth and rub the cheeks gently with coloured red pencil. You have to lick the pencil first!
Step 4: The Hat and Bobble Are Knitted All in One
Here's the hat with attached knitted bobble. Sew it neatly to the head with the seam at the back.
Step 5: The Pocket Is Ready
When you have finished knitting the elf, knit the pocket. Use the rainbow colours or any bright colours you like!. Sew up neatly with the seams at the back and lower edge of the pocket.
Step 6: The Elf Is Finished
Sew up the elf on the wrong side, leaving a gap in the top of the head for stuffing, then turn right side out. Stuff gently with fibre fill and close up the hole in the top of the head (which will be covered by his hat). Add neat stitches for buttons down the front to match his scarf. Sew on the matching scarf. Sew up the arms wrong side out, and then turn right side. Stuff lightly and sew them on (one each side!) Make sure everything is sewn very tightly, we don't want him falling apart!
Step 7: Lastly, He Goes Into the Pocket
He's popped in the pocket and is ready to go! You can even sew his pocket onto a sweater or pop him and his pocket into an existing pocket!