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I can't find this in the manual but I probably missed it.

Will, say armament factories, still produce if isolated?
Will the production get sent to unit in the isolated pocket? I don't think it does as the production is sent to a central pool and redistributed from there.

I know manpower will migrate when isolated (21.1.10.4 Local Manpower Recruitment in Isolated Areas). I cant find the reference in the rules, but I thought I remember reading that as soon as a city was cut from the rail network the factories will no longer be active.