Thanks for your response. It sounds like you are saying everything is working as intended. I will point out that Armament production requires supplies not resources, so in the case that I presented the city could be producing armaments for about 20 turns before it runs out of supplies. (Probably not likely, but in theory possible).
With regrards to starvation what you say directly contradicts what is written in section 20.5.1 pasted below. This should be changed if not true.
20.5.1. Manpower Starvation Damage
Every turn town, city and urban hexes must trace supply and will suffer a starvation damage percentage equal to the supply path MP cost minus 5. For example, for the supply trace path to Leningrad over Lake Ladoga in the summer the move path MP cost would be 13 (20.1.3), resulting in Leningrad adding 8 percent each week to its manpower damage percentage. Manpower factories recover 3 percent per turn (21.2), so the net increase in damage would be 5 percent per turn. If a town, city or urban hex cannot trace a supply path and is isolated it takes 25 percent starvation damage every turn. Manpower works just like factories in terms of producing manpower points based on the damage (some up to 50 percent, none once over 50 percent damaged). When a town, city or urban hex’s manpower reaches 100 percent damage, additional damage may cause the permanent loss of manpower factory points from the hex. Town, city and urban hexes will only take starvation damage if a supplied enemy unit is within four hexes of the hex. Also, town, city and urban hexes won't take starvation damage if they can trace a path of friendly ground hexes to a railhead of four hexes or less, regardless of enemy ZOC or the number of MPs to the railhead.