Caterpillar Inc.’s fourth-quarter profit dropped 32 percent amid a global economic slowdown that has undermined demand and forced the company into more job cuts and diminished profit expectations for the year.

The world’s largest maker of mining and construction equipment on Monday reported earnings that fell far short of expectations as customers scaled back purchases. Demand took a hit from slumping commodity prices, the credit freeze and tough market conditions.

Caterpillar, an economic bellwether and component of the Dow Jones industrial average, earned $661 million, or $1.08 per share, in the fourth quarter, down from $975 million, or $1.50 per share, a year earlier.

Analysts, on average, expected earnings of $1.31 per share on revenue of $12.84 billion.

Shares fell $2.14, or 6 percent, to $33.52 in late morning trade.

The Peoria, Ill.-based company scaled back its expectations for 2009, with revenue and sales seen at about $40 billion, and profit at $2.50 per share. That was down from revenue and sales of $51.32 billion and profit of $5.66 per share last year.

“Without a doubt, 2009 will be a very tough,” Caterpillar Chief Executive Jim Owens said in a statement.

The company also announced 5,000 new layoffs on top of several earlier actions. The latest cuts of support and management employees will be made globally by the end of March. An additional 2,500 workers already have accepted buyout offers, and ties have been severed with about 8,000 contract workers worldwide. In addition, about 4,000 full-time factory workers already have been let go.

“These are very uncertain times, and it’s imperative that we focus … on dramatically reducing production schedules and costs in light of poor economic conditions throughout the world,” Owens said.

Fourth-quarter profit was hit by a combination of higher costs, a sudden slowdown in demand and weak results from its finance unit.

The demand slowdown followed a boom for most of the year.

“We were whipsawed … as key industries were hit by a rapidly deteriorating global economy and plunging commodity prices,” Owens said.

Higher costs of raw materials, such as steel, eroded Caterpillar’s quarterly profit, and offset a $409 million tax benefit and higher product prices.

Though steel prices plummeted in the second half of 2008, Caterpillar’s material prices lag the market and costs reflected higher metal prices earlier in the year.

The company last month saw significant order cancellations from dealers and expects lower demand going forward.

Kristine Kubacki, an analyst at Avondale Partners, said the results were worse than her firm expected, and that she was concerned about further order cancellations.

“It might be a little bit optimistic getting production and the work force to match the macroeconomic environment,” she said.

In recent weeks, analysts have forecast continued weak earnings for Caterpillar and other U.S.-based machinery firms, pointing to the weakening construction and mining markets and an infrastructure spending plan proposed by President Barack Obama that may not boost equipment demand anytime soon.

Caterpillar, which employs more than 112,000 people worldwide, has expanded dramatically in recent years, driven by surging demand spurred by infrastructure projects in developing countries, particularly in Asia. But that demand has waned with the weakening global economy.

In response to the worsening conditions, the company recently has announced plans to lay off workers, slash executive compensation by up to 50 percent and offer buyouts. It also instituted a global hiring freeze. In December, Caterpillar said it was offering buyouts to about 25,000 U.S.-based workers. About 10 percent, or 2,500, of those workers have accepted the offer.

Investors hope Obama’s infrastructure spending program will bolster demand for road-building and other equipment made by Caterpillar. But analysts warn the plan may have little near-term impact on equipment demand, and that the proposed figures would be insufficient given steep declines in the U.S. construction market.