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Nah its not encumbrance. You won't see it change when you pick things up or drop them. I believe its a sort of fatigue. Everytime I use stamina and swing my axe to cut trees I notice it go up. At some point though it changes to numbers and I wonder if its a strength stat that increases as long as you use your stamina (making you tired quicker, I think) and fill the bar up but goes down if you rest too long.